Financial inclusion is an incredibly important topic at this year’s Cards & Payments Asia conference (20th-21st April, Singapore). We’re excited to be welcoming to the show Swapnil Kant Neeraj, Principal & Microfinance Lead at IFC, part of the World Bank Group, who will be joining our panel on “banking the bottom of the pyramid”. Ahead of the session we caught up with Swapnil to find out more about the IFC and his views on the value of financial inclusion initiatives:
Can you give us a quick introduction to the work that IFC does?
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries.
We utilize and leverage our products and services—as well as products and services of other institutions in the World Bank Group—to provide development solutions customized to meet clients’ needs. We apply our financial resources, technical expertise, global experience, and innovative thinking to help our partners overcome financial, operational, and political challenges.
Clients view IFC as a provider and mobilizer of scarce capital, knowledge, and long-term partnerships that can help address critical constraints in areas such as finance, infrastructure, employee skills, and the regulatory environment.
IFC is also a leading mobilizer of third-party resources for its projects. Our willingness to engage in difficult environments and our leadership in crowding-in private finance enable us to extend our footprint and have a development impact well beyond our direct resources.
Why is financial inclusion and the war on poverty more than just a public sector issue?
People who are “unbanked” struggle to save, plan for the future, start a business, or recover from unexpected losses. Small businesses without access to affordable financial services or credit can’t acquire capital to invest, grow, and create jobs.
Let us look at some of the key statistics with regard to financial exclusion:
- An estimated 2.5 billion people didn’t have access to these kinds of financial services, including 80 percent of those living on less than $2 per day
- Globally – close to 200 million small businesses are financially underserved/ unserved
- 3 billion women worldwide remain unbanked.
- Only 15% of adults in fragile and conflict affected states have a formal account
- ~250-300 million microenterprises (~60% of all microenterprises) do not have access to a financial institution loan and need one. This correspondents to a credit gap of ~ $1.4-1.7 Tn globally
These are astounding numbers, which speak to lost opportunities on a scale that is massive.
Further, addressing these challenges would require collaborative effort from govt as well as private sector. Catalyzing private sector leadership will be key for sustainable financial inclusion – which has immense business opportunities. As per the study done by McKinsey for IFC – Financial inclusion opportunity is on par with the estimated retail banking revenues of Africa, the Middle East and Latin America combined
Which do you see as being the most important private sector industries when it comes to fighting poverty?
Provision of financial services/ inclusion through private sector initiatives has huge potential to fight poverty. Financial access provides the building blocks people and businesses need to manage their economic well-being, and promotes savings, investment, job-creation, and growth. There are several global studies which substantiate that increase in financial access leads to increase in income, employment, productive investments as well as reduction in rural poverty and provides better ability to low income households to manage income shocks and reduces their vulnerability.
More than one in three people on earth now lacks access to basic bank accounts or any kind of credit. Our goal is to bring that number to zero in just five years. The WBG has committed to UNIVERSAL FINANCIAL ACCESS BY 2020.
However, financial access is not enough. We would need financial inclusion. Financial inclusion means access by all households and micro, small and medium enterprises to a full suite of financial services, including credit, savings, insurance, payments and remittances, as well as financial education.
Financial inclusion is important as it is
- Key for economic activity
- Improves quality of life
- Helps create middle class
- Builds social infrastructure
For achieving financial inclusion – financial access is a stepping stone. Doing so will be an incredible challenge, but the reward will set us on a path to end extreme poverty by 2030, one of the two overarching goal of the World Bank Group.
How much can Asia learn from a financial inclusion standpoint from other developing markets? Could, for example, an mPesa work just as well in Asia as it has in Kenya?
Reducing the financial access deficit requires us to adopt new technologies and work in innovative ways, like building electronic payment systems instead of continuing to use paper money and this can benefit lots of government initiatives both in terms of easier and more efficient as well as better targeted social transfers to the poor. Doing so will allow people to obtain social assistance more quickly, and cuts down on opportunities for graft. In this regard, I would particularly like to emphasize the importance of electronic payments, which lowers the cost and increase the security of money transfers, payments, and receipts. Some countries in Africa, in this regard had tremendous success.
But Asia has its own success story and there are some encouraging examples and interesting and exciting initiatives. We would like to particularly mention about our two investments in this space viz. FINO in India which is reaching out more than 28 million clients and bKash, a mobile financial company in Bangladesh, has addressed this challenge by turning cell phones into devices that can send and receive money. By the end of 2013, only two years after bKash launched, it counted 11 million registered accounts in a country where 22 percent of the adult population uses mobile financial services.
IFC has been working with several innovators in this space like Alternative Deliver Channels, mobile & internet companies etc. IFC has partnered with Ant Financial, an affiliate of China’s e-commerce giant Alibaba Group, to use Internet-based financing to expand lending to more Chinese micro and small enterprises and women-owned businesses. IFC has provided Ant Financial subsidiary Ant Credit with 1.5 billion yuan ($245 million) in financing. The package includes a 500 million yuan ($81 million) loan specifically targeting women-owned small businesses Ant Credit provides micro loans to small businesses and individual entrepreneurs over the Internet. It evaluates potential borrowers’ creditworthiness based on transactional and behavioral data, such as timely delivery of products and settling of bills, which is gathered as they do business online. Ant Credit’s clients are mostly small businesses – more than half of which are owned by women – on Alibaba Group’s online marketplaces such as Taobao.com and Tmall.com.
What advice would you give to a private sector organisation looking to move financial inclusion and fighting poverty out from under their CSR department?
As a part of our commitment to Universal Financial Access, the WBG will contribute to delivering accounts to reach at least 40% of the excluded, or 1 billion clients by 2020. IFC will strive to reach about 600 mn clients by itself.
Asia is going to be epicenter of the inclusion strategy and implementation. Unfortunately, Asia alone accounts for more than 55% of unbanked population with India and China; respectively accounting for about 23% and 16% of the global unbanked. Therefore, our success in this field will be incomplete – if we do not achieve substantial success in key countries in Asia like China, India, Bangkadesh, Indonesia, Vietnam, Philippines, Myanmar etc. As a WBG, we are in the process of preparing and implementing – Country Action Plan to achieve Universal Financial Access across with specific emphasis on Asia.
This requires very strong partnership and multipronged strategy in association with various stakeholders. We will need to create awareness among key stakeholders on the benefit of financial inclusion, secure strong commitment from both govt. and public sector and ensure enabling regulatory framework to promote private sector initiatives in this space including development of payments & financial infrastructure as well as run strong financial literacy programmes. In all these areas the partnerships with private sector including non-business initiatives through CSR could play a major role.
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Photo credit – Danumurthi Mahendra